Left in the Lurch by Private Loans From For-Profit Colleges
The loans have ensnared hundreds of thousands of students, who aren’t
protected by the same government safeguards carried by federal loans.
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After Kashia Campbell graduated from Florida Career College, the school
refused to release her transcript, which she would need for taking a
certification exam, until she repaid more of a $6,500 loan it had made
to her.
After Kashia Campbell graduated from Florida Career College, the school
refused to release her transcript, which she would need for taking a
certification exam, until she repaid more of a $6,500 loan it had made
to her.Credit...William DeShazer for The New York Times
BySarah ButrymowiczandMeredith Kolodner
NYT, March 25, 2021
Kashia Campbell earned top grades from her patient care technician
program at Florida Career College. So she was shocked to find that, upon
graduation, she was blocked from the exam to get certified in the field.
The problem was a $6,500 private loan she had taken out from the college
to help her cover tuition. Florida Career College demanded that she pay
more of her loan before it would release her transcript, something she
said she had not been told previously. The transcript was a prerequisite
for the certification exam, and she ended up in a lower-paying job
earning $10 an hour. Four years later, she can pay only $50 a month on
her school loan.
Ms. Campbell is one of hundreds of thousands of students who have
borrowed directly from for-profit colleges. These direct-lending
programs have proliferated in the last decade, and almost never come
with the safeguards guaranteed by federal loans. The colleges can demand
payments while students are still in school. They can withhold
transcripts for nonpayment. They can impose onerous interest rates,
reaching into the double digits.
Many students are unable to make their monthly payments, leaving their
credit ruined and their financial and professional futures in grave doubt.
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Schools often offer these loans because they’re required by law to have
a small portion of their revenue come from sources other than federal
financial aid. For-profit schools reap billions from financial aid —
grants, loans and other programs that students use to help pay for
college — and the legal provisions were put in place to ensure that in
an industry mired by scandal and fraudulent behavior, the colleges don’t
exist only to harvest federal dollars.
The schools generally defend these loans as enabling students to pay for
a college education that would otherwise be unaffordable. Jody Kent,
vice president for communications and public affairs at Universal
Technical Institute, said in an emailed statement that its loan program
gave “students access to high-quality education.”
Direct lending by for-profit schools boomed during the Great Recession,
in part because private lenders stopped or curtailed what they offered,
and it has spread steadily since.**Without government oversight,
for-profit colleges have lent at least$4 billion
<https://protectborrowers.org/wp-content/uploads/2020/12/Shadow-Student-Debt.pdf>,
and potentially much more that has gone untracked. The colleges plan for
many of these loans to go unpaid — a core feature of their business models.
It’s a practice that lending experts say ultimately places the risk on
students while helping to enrich the companies running the schools.
“The high default rates and low repayment rates — they factor that in as
the cost of doing business, and the students are the ones who lose out,”
said Ashley Harrington, federal advocacy director for the Center for
Responsible Lending. “We’re particularly worried that we’ll see more of
this as the economy gets worse.”
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There are now dozens of companies and colleges, which enroll tens of
thousands of students, that offer direct loans, according to federal
audits, Securities and Exchange Commission filings and a review of
college marketing materials.
The for-profit college industry has a long history of being accused of
defrauding students, including by misleading them about the job
prospects a degree would bring. At least two schools, ITT Technical
Institutes and Corinthian Colleges, have closed after investigations.
ImageA few of the largest loan programs, such as those run by Corinthian
Colleges and ITT Technical Institutes, have closed along with their schools.
A few of the largest loan programs, such as those run by Corinthian
Colleges and ITT Technical Institutes, have closed along with their
schools.Credit...Sandy Huffaker for The New York Times
But others have thrived, as has their lending.
When Ms. Campbell, now 49, signed her enrollment paperwork, she assumed
she would quickly get a job after graduation and have no problem paying
back her loans. Instead, she said, she is now worse off. After she
graduated from Florida Career College in 2016, she said, she pleaded
with the campus director and bursar’s office to release her transcript
but was told no. She called the International Education Corporation but
got the same answer.
“I was crying like crazy,” she said. “I don’t understand it. You’re not
letting me go out and get a good-paying job so I can pay you back.”
Joseph Cockrell, a spokesman for the International Education
Corporation, said that while he could not comment on individual
students’ financial accounts, “students must be current with their loan
payments for transcript requests.” He did not respond to follow-up
questions about how much a student needs to pay to be considered
“current” on loan payments.
Whatever money companies are able to recoup from the loans they directly
offer may matter less than the fact that the loans themselves help keep
the colleges eligible to receive billions of dollars in federal
financial aid.
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Under a federal law known as the 90/10 rule, for-profit schools are
allowed to derive a maximum of 90 percent of their total revenue from
federal student aid. The remaining 10 percent must come from elsewhere,
including students’ repayments on their direct loans from the college.
Even if a student pays back only a fraction of the money owed to a
school, it helps the institution keep the correct ratio and continue to
receive federal aid.
“In the case of these loans, it’s a pretty sure bet,” said Yan Cao, a
fellow at the Century Foundation, a progressive think tank, which
obtained several company audits through a public records request and
shared them with The New York Times and The Hechinger Report.**That
federal money “goes straight into the school’s hands,” Ms. Cao said.
The International Education Corporation, the company that operates Ms.
Campbell’s school and 29 other campuses, was owed $33 million in
repayments in 2018, according to an independent audit submitted to the
federal Education Department. The company estimated that $13 million of
that — or 40 percent — would never be repaid.
And in 2012, the company said that collecting all its money would be
unlikely “due to the nature of the programs and credit quality of the
students,” according to another independent audit.
Image
Because Ms. Campbell could not take the patient care technician
certification exam, she ended up in a lower-paying job and was barely
able to make payments on her loan.
Because Ms. Campbell could not take the patient care technician
certification exam, she ended up in a lower-paying job and was barely
able to make payments on her loan.Credit...William DeShazer for The New
York Times
Lincoln Educational Services Corporation, another company that runs
for-profit colleges, hasdescribed
<https://investors.lincolneducationalservices.com/index.php/static-files/f43d4387-bd4f-4586-9e03-50e4a6e0b648>how
it increased its direct lending in order to help it meet the 90/10
requirement. In 2012, the company explained that it had increased the
gap between tuition and what federal financial aid covers and, in turn,
provided loans to students to help them fill that gap. Over the first
nine months in 2012, its lending had grown more than $7 million, to
$33.7 million from $26.4 million.
That year, when Jodi-Ann Clarke enrolled in the licensed practical
nursing program at Lincoln Technical Institute’s campus, which has since
closed, in Hamden, Conn., the full cost of attendance came to $32,189.
That was far more than what federal financial aid would cover or what
she could afford out of pocket.
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Ms. Clarke recalls college employees giving her instructions on how to
take out a loan directly from the school during the enrollment process.
Colleges sometimes encourage students to sign up for loans without the
students realizing what they are taking on.
“It’s really helpful to think about this as an important part of the
marketing process as much as it is a student loan,” said Mike Pierce,
policy director and managing counsel at the Student Borrower Protection
Center, a nonprofit advocacy group focused on student debt.
Unlike Ms. Clarke’s federal loans, which started accruing interest only
after she left school, her Lincoln Tech loan began requiring payments
when her classes started, and the interest accumulated while she was
still in school. Lincoln Tech’s administrators projected an attitude of
“we’re going to get our money and we’re going to put them in debt and
they’re going to have to pay us back,” Ms. Clarke said. “I just feel
like they’re a money pit.”
Peter Tahinos, senior vice president of marketing for Lincoln
Educational Services, said in an email that he could not comment on
individual students but added that employees “provide guidance on the
best options for them to finance their education.” Lincoln charges 7
percent interest on its loans. Students can choose to begin payments
immediately, with interest accruing right away, or after leaving school.
Some colleges increase the burden by imposing high interest rates.
Unlike federal loans, which currently have interest rates of 2.75
percent for undergraduate borrowers, loans directly from schools can far
exceed that. A 2020 report by the Student Borrower Protection Center
uncovered interest rates as high as 19 percent for loans offered by some
schools.
Scrutiny of this practice remains low at both the state and federal
levels. A survey of 75 agencies across all 50 states — including
higher-education oversight agencies, attorneys general and departments
of finance or banking — by The Hechinger Report, a nonprofit education
news organization, found that few places tracked any information about
school-offered loans. In fact, in the vast majority of states,
higher-education authorizers don’t require colleges to report plans for
such programs.
Universal Technical Institute, a publicly held chain of 12 campuses
across eight states, told its investors in its 2020 annual report that
“changes in laws or public policy could negatively impact the viability
of our proprietary loan program and cause us to delay or suspend the
program.”
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But for now, there remains scant monitoring and regulation of the direct
lending. Several state officials said that colleges would be subject to
state laws and could be investigated if abuses were reported, but that
otherwise they had no oversight of these loans. A spokesman for the
federal Education Department said loans offered directly from schools
fell outside the department’s purview. And since its creation in 2011,
the Consumer Financial Protection Bureau has taken action against just
three for-profit education companies accused of predatory or deceitful
loan practices.
Ms. Campbell has been unemployed for the past year and doesn’t think
she’ll ever be able to find a job that pays well in health care without
a license. She worked in financial auditing before going to Florida
Career College and is sending out résumés to companies to see if she can
find a way back into the industry.
“I wish I could go back in time,” she said. “I never would have signed up.”
This article
<https://hechingerreport.org/left-in-the-lurch-by-for-profit-college-direct-loans/>was
produced byThe Hechinger Report
<https://hechingerreport.org/special-reports/higher-education/>, a
nonprofit, independent news organization focused on inequality and
innovation in education.
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